Increasing The Stimulus Package

All recent discussion of the Fed’s $85 billion per-month stimulus package has been geared towards diminishing the amount, but now other factors have come into play that will potentially influence the Federal Reserve to increase it. The Fed has been using the consumer price index and the unemployment rate as indicators for its program; tapering would begin if unemployment hit 6.5% or inflation rose above 2%. Neither has happened yet and inflation has actually been well below the central bank’s target in the past 5 months, causing some Fed officials to consider supporting an increase in bond purchases if this trend continues.

The economy only grew 2.5% last quarter, falling short of the 3.2% projection by economists. Consumer spending increased 0.2% last march which is potentially a poor sign of coming months. The bond buying program of the Fed is meant to stimulate the economy by maintaining prices and keep interest rates low, its effectiveness has been offset by the recent sequester cuts which began March 1.

Evan Chang

Source: The Wall Street Journal

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